Why I Have More Than 10% of My Assets in Gold and Silver

Why I Have More Than 10% of My Assets in Gold and Silver

By Jeff Clark, Senior Precious Metals Analyst ... 2016-07-29

I shorted the stock market in October 2008, when the S&P fell as much as 33% in one month.

Great timing, eh? I’d bought shares in SDS (ProShares Ultra Short S&P 500), an ETF that rose twice as much as the S&P fell. It was a short-term trade, and I personally booked a profit of over 50% in three weeks.

That was fun. And you probably think I made a lot of money. Unfortunately, it made almost no difference to my overall portfolio.

That’s because I didn’t buy enough shares relative to the size of my total assets. My position was too small to materially impact my portfolio. In fact, it was so small that my net worth still ended the month lower.

I made the correct investment call. My timing was great. But my small position size kept me from profiting.

And that forms the basis of why I have more than 10% of my investable assets in physical gold and silver. Here’s why you should consider a sizable portion for yourself, too…

Gold’s Yin to the Market’s Yang

Mike has made it clear numerous times that he believes a major market correction is ahead. And it won’t just be common stocks that fall, but most all asset classes.

If that turns out to be the case, how does an investor make money? Other than shorting those investments, the only way to earn a profit is from an asset that would rise when those others fall.

Enter gold.

This chart shows the correlation of gold to other common asset classes. The zero line means gold does the opposite of that investment half of the time. If it’s below zero gold moves in the opposite direction of that investment more often than with it (and vice versa if above zero).

This research comes from the World Gold Council, but analysis from other firms show similar results. It’s clear that most common investments have a low correlation to gold.

This is practical information for us investors. If the stock market declines, our gold investments are more likely to rise and give us the opportunity to profit (what Mike has been saying for years). Gold will also outperform the cash sitting in your bank account or money market fund. Even real estate values follow gold only a little more than half the time.

If you want an asset that will rise when most other assets fall, gold is likely to do that more often than not.

This makes sense when you think about it. Stocks benefit from economic growth and stability. Gold benefits from economic distress and crisis.

So, if you think the economy is likely to be robust, you may want to own less gold than usual. If you think the economy is headed for weakness, then you may want more gold than usual. And if you think the economy is headed for a period of upheaval, you may want to own a lot.

How Much Gold And Silver Do YOU Need?

As you might imagine, I’m frequently asked by investors if I think they should buy more gold. Not only would answering that question for an individual investor violate a slew of SEC regulations, I shouldn’t answer it anyway—I don’t know their financial situation, risk tolerance, investment portfolio, investment experience, age, income, health, etc.

However, based on my experience and the research above, there are three practical guidelines you can use to determine if you have enough gold and silver—or need to accumulate more…

1. Anything less than 5% of assets in gold will make no material difference to your portfolio.

If you add up all your investable assets, and the amount of physical gold and silver you own totals less than 5% of those assets, then you’re dabbling instead of investing. It will not protect your portfolio against major losses in a market crash.

Here’s a practical example…

If you have 5% of assets in gold, and 50% in the S&P, then gold needs to rise 400% if the stock market falls 50% just to break even (assuming gold rises as much as stocks fall).

Remember what happened to me above… even though I had the right investment at the right time, my allocation was too low to make a difference. Don’t make the same mistake with your allocation to gold and silver.

2. The more common stocks you own, the more gold you need.

If you own Apple and Facebook and Amazon and Netflix and Google and any other stock or stock fund, then you need to own more gold and silver than the investor who has little or no common stocks.

Conventional investment advice says investors should have an allocation to both stocks and bonds, the latter to protect the portfolio in a downturn. But what happens if they both fall in a crash? By almost any measure bonds are in a bigger bubble than stocks, so the risk is high that they will not be able to offset losses in stocks. Don’t forget that bond prices crashed in late 2008, and many stopped paying dividends. That’s not exactly a good safety net. Gold, on the other hand, ended the year up 5.5% (in spite of initially falling).

Seriously, if you own a lot of stocks, you need a hedge. As we’ve shown before, the S&P has fallen roughly 20% or more eight times in the past 40 years. Meanwhile, gold usually rose in those stock selloffs.

My advice is to swap out some of your stocks and bonds for gold. I currently own no stocks other than gold and silver stocks, and no bonds except Treasuries. That may not be appropriate for everyone. And it doesn’t guarantee I’ll be right, but it does show my money’s where my mouth is.

3. The bigger the turmoil you expect, the more gold you need.

As many of you know, it isn’t just a crash in stocks that Mike is predicting. It’s a massive, global debt implosion that ushers in a new monetary system, including the demise of the US dollar. That realignment will wreak havoc on most investments. One of the few that will not just survive but thrive is gold.

Keep in mind that you must hold your gold and silver until this trend is fully realized. My ETF purchase above was a trade, and not a meaningful investment. If you treat your precious metals holdings the same way, you could miss out on the opportunity of a lifetime.

If you agree with Mike’s prediction, then history shows this is what will likely happen:

A transfer of wealth that will take money out of the hands of stock and bond investors and put it in the hands of gold and silver owners.

Of course, if you think we’re wrong, or believe that central bankers will be able to steer successfully out of the chaos they’ve created, then you need less gold and silver. But before you draw that conclusion, ask yourself… if things are really as good as we’re told by our governments, then…

Why are negative interest rates spreading around the globe?

Why does debt continue to spiral higher in most nations?

Why do so many countries continue to print money?

Why is the US Fed unable to raise rates?

Why is global economic growth stagnant, in spite of massive stimulus efforts by much of the developed world?

Why is talk of “helicopter money” growing?

The answer is obvious: the current economic, fiscal and monetary situation is not as good as we’re told. The fact that central bankers continue to take these extraordinary measures shows just how shaky and vulnerable our financial system really is.

So, how much gold and silver do you need? Enough to not just protect your portfolio when the inevitable crisis hits, but enough to grow your wealth, improve your standard of living, and invest in the next undervalued asset class. You might even be part of the new rich.

I won’t make the same mistake with gold that I did with that S&P short fund. I, along with many others at GoldSilver, plan to profit in a massive way. I hope you join us.